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Homework answers / question archive / Florida International University BUS 4602 Chapter 3 1)Please indicate which of the following costs are fixed and which are variable with a V or F beside each cost: __ Advertising campaign expenses __ Google search/click costs __ Costs associated with marketing coupons to consumers __ Coupon redemption cost paid to retailers __ Salesperson commission __ Sales manager’s salary __ Cost of applying for a patent _ Cost of designing packaging __ Royalty paid to patent holder __ Cost of product packaging __ Delivery costs of orders to merchants __ Marketing overhead costs __ After-sales service costs __ Import duties __ Cost of a salesperson’s car __ Product usage instruction booklet __ Cost of a warranty program 2
Florida International University
BUS 4602
Chapter 3
1)Please indicate which of the following costs are fixed and which are variable with a V or F beside each cost:
__ Advertising campaign expenses
__ Google search/click costs
__ Costs associated with marketing coupons to consumers
__ Coupon redemption cost paid to retailers
__ Salesperson commission
__ Sales manager’s salary
__ Cost of applying for a patent
_ Cost of designing packaging
__ Royalty paid to patent holder
__ Cost of product packaging
__ Delivery costs of orders to merchants
__ Marketing overhead costs
__ After-sales service costs
__ Import duties
__ Cost of a salesperson’s car
__ Product usage instruction booklet
__ Cost of a warranty program
2. Allocation of overhead costs:
Is subject to organization politics. a) True b) False Creates cost distortions. a) True b) False
Can lead to increased cooperation. a) True b) False
3. The best way of assessing the profitability of a customer is to first compute the average cost of an item sold and hence its average profitability, and then multiply this product item profitability by the amount of the product that each customer buys. The mix of product purchases by the customer will then help determine customer profitability.
a) True b) False
4. Please check all of the following costs that cannot be charged to individual customers through the products they purchase:
Product manufacturing components and materials
Product material and component ordering, handling and inventory costs
Product manufacturing labor costs
Product manufacturing machine costs
Product defect reworking/disposal costs
Product end-of-life take-back and disposal costs
x Supervisor and engineer costs fixing product manufacturing process
Product packaging costs
Costs of holding product inventory
x General overhead
Product freight costs
Picking, packing and loading product costs
Product return freight, handling, recycling/disposal costs
Product warranty/replacement costs
Product after-sales service visit costs
Product after-sales service telephone contact costs
Product after-sales online service contact costs
Product order receiving and processing costs (by internet, phone or in-person)
Product credit terms costs
Product slow payment collection costs
Product bad debt costs
Product selling costs
x Product advertising costs
x Product research and development costs
x Time spent by management on managing product
5. Sunk costs are common costs. a) True b) False
6. Common costs have to be considered in financial reporting of results but should not be used in decision making.
a) True b) False
7. Activity Based Costing (ABC) is growing in popularity.
a) True b) False
8. Every time a new product or service is introduced, it takes a while for a company to learn to make it efficiently.
a. True b) False
b. 9. Helen is full time business student and needs to decide if she will attend a four week summer
c. session that costs $1,000 or take a break from school and work making $400 a week. What is
d. the opportunity cost of attending the four week summer session?
e) a) $1,000
f) b) $1,600
g) c) $600
h) d) $2,600
i) 10. is sales minus variable expenses
j) a) Revenue
k) b) Margin on
l) c) Contribution margin
m) d) Fixed cost recovery
n) 11. Acme Products sales are $65,000, variable expenses $39,000, Total fixed costs $12,000. What
o) is the contribution margin percentage.
p) a) 17%
q) b) 20%
r) c) 9%
s) d) 40%
12. Acme Products budgets sales of $50 million, variable expenses $45 million, Fixed Costs $3
t) million. Calculate the new expected net profit if there is a 33.3% increase in fixed costs and a
u) 10% decrease in variable expenses. v) a) $8,300,000
w) b) $5,500,000 x) c) $3,500,000 y) d) $(3,500,000)
z) 13. Beta Products manufactures B1 at a cost per unit of 5,000 unit quantity of Direct Materials aa) $4/unit, Direct labor $10/unit, variable overhead $5/unit and an allocated fixed overhead of bb) $35,000 ($7/unit). The total cost per unit is $26. XYZ company has offered to make and
cc) supply B1 to Beta Products for $30/unit. If Beta accepts the offer then some of the facilities dd) and production capacity used to make B1 could be used to help make another product B2 that ee) would reduce the cost of making B2 by $50,000 and also reduce the fixed overhead that
ff) would still have to be applied to B1 by $15,000 from $35,000 to $20,000. By what amount gg) would costs be increased or decreased if Beta accepts XYZ’s offer?
hh) a) $30,000 increase
ii) b) $5,000 increase jj) c) $10,000 decrease kk) d) $30,000 decrease
ll) 14. Ultralight Co. manufactures torches. It can manufacture 300,000 torches a year at a variable
mm) cost of $2.50/unit and a fixed cost of $450,000. The forecast sales are 240,000 at a price of $5 nn) per torch. A special order of 60,000 torches will be sold at a 40% price discount of the $5
oo) regular price. By what amount will profit be increased or decreased as a result of the special pp) order.
qq) a) $60,000 decrease rr) b) $30,000 increase ss) c) $36,000 increase
d) $180,000 increase
15. The Big Bear Co. owns a chain of 45 small supermarkets. Budgeted data for the Lakeshore store is as follows: Annual sales $425,000; Annual cost of goods sold and other operating expenses $385,000. Annual building ownership fixed costs (not included previously) is
$20,000. The company can lease the building to a flower shop for $4,000 a month. Should Big Bear:
a) Close the store and sell the building b) Close the store and lease the building
c) Continue the store as it is
d) Minimize the store and rent a small section to the flower shop
Study Questions
1. The problem with managers is that they are too complex in their thinking about costs.
a) True b) False
2. The focus of marketing should be on sales and market share as the key marketing performance metrics.
a) True b) False
3. A study of what was included in marketing costs found that:
Advertising and sales promotion were included about half the time True False Field sales force costs were included always True False
Inventory carrying costs were included about half the time True False The cost of physical distribution was included 75% of the time True False
Packaging was included in marketing costs about 25% of the time True False
4. Marketing management is in a mess because of:
a) A lack of use of customer satisfaction metrics
b) A lack of use of customer loyalty metrics
c) A lack of consideration of all marketing costs
d) None of the above
5. A way of impressing a recruiter is to ask if the company focuses on sales or product quality.
a) True b) False
6. A small start-up company is thinking about outsourcing its sales-force to a sales-rep company who charges 5% on each sale. The alternative is to continue to hire, train and manage its own sales-force. At present the company accountant has said it seems a toss up as to whether outsourcing will cost more than an in-house sales-force at current sales and costs. The
company is expecting rapid growth where its sales may grow five times in the next five years. Should it outsource its sales force?
a) Yes b) No
7. If the company faces a much less optimistic future and is not sure whether it will survive the next two years should it outsource its sales force?
a) Yes b) No
8. Operating leverage comes from having high fixed costs.
a) Yes b) No
